Perrin: Indirect market influences: why North Korea matters
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- Published on Thursday, April 25, 2013
By: Steven Perrin
myWestman.ca
When analyzing the market we tend to focus mainly on the fundamental influences on grain prices. Recently, this column has devoted a lot of space to the impacts of weather here and elsewhere, important production reports and key developments on the demand side.
We focus on these for a reason — that's why they're called fundamentals. Yet to fully understand how prices move or will move in order to make smarter business decisions, we must also keep abreast of the indirect influences on grain markets. To ignore them is to form an incomplete picture of the grain market landscape.
Admittedly, identifying indirect influences and assessing their weight is a little more difficult. It's easy to become overwhelmed by the sheer number of factors one could consider. But broadening your analysis even a little can't help but improve your accuracy. Below are a few examples of indirect factors that can affect your bottom line.
Foreign exchange markets. It can be very helpful to be aware of currency values in export markets that buy a lot of the grain you produce. A good example is the Indian rupee. A large chunk of western Canadian pulse crop exports go to India and the stronger the rupee gets, the cheaper our exports become for Indian buyers. If you're growing pulses, keeping informed on the outlook for the Indian economy and the impact this may have on the rupee may actually help you determine the outlook for your own crops' prices.
Oil prices. In recent years the rapid development of the biofuels industry has created new demand for corn and oilseed crops. Just how strong that demand is depends on prices for competing sources of energy, oil being the primary example. As oil prices rise, ethanol and other biofuels become more appealing as a substitute, with a corresponding increase in demand for the crops they're comprised of.
Gold, stocks, and North Korean shenanigans. Anything that makes the financial industry jittery is likely to have ripple effects on grain markets, which is why Kim Jong-un's posturing could influence your vacation budget next winter. During times of market volatility, investors tend to liquefy their assets, including stock indexes that hold agricultural commodities.
This can sometimes override an otherwise positive grain outlook, at least temporarily. Paying attention to the broader financial markets, then, can help you anticipate changes in grain markets.
When it comes down to it, having a strong sense of fundamentals like weather is crucial. But being aware of the above and other indirect influences on grain prices can make you more confident in your decision making.
Steven Perrin is a marketing advisor in Rivers Manitoba with FarmLink Marketing Solutions.
